Post-Brexit caution has pushed London’s office sector into fourth place in a list of preferred investment locations, according to INREV.
The “safe-haven” of London offices fell from the number one preference last year to fourth place (at 48%) in the global Investment Intentions Survey 2017, carried out by the association for Investors in Non-listed Real Estate Vehicles (INREV).
The association’s chief executive, Matthias Thomas, speaking at a roadshow event in London last night, said that INREV will form a cross sector committee to address the implications of Brexit.
INREV’s event, attended by around 200 delegates, was held just a few hours after UK prime minister Theresa May set out a 12 point plan for the country’s exit from the European Union.
Eric Byrne, head of global multi-manager and securities at UBS, told delegates that City of London offices would be avoided by the investor in the short to medium term as a consequence of the UK’s Brexit negotiations.
Byrne also pointed to the increasing role of automation in the financial sector as a factor in occupier requirements, citing UBS’ move to new offices in London as an example of the changing nature of space use.
Co-panellist Austin Mitchell, head of global business development at TH Real Estate, said the UK’s vote in June to leave the European Union had “dramatically impacted” on occupier confidence.
There was, he said, a “very good chance of a buying opportunity in London if repricing occurs as we saw in previous cycles”.
A minimum of €52.6bn of capital is expected to be invested in global real estate this year, INREV said, following its survey with ANREV and PREA of 119 investors, 11 fund of funds managers and 184 fund managers.
“The rise in capital allocation to real estate investment suggests a robust story for the coming year,” said Henri Vuong, INREV’s director of research and market information.
There were, Vuong said, “obvious questions and concerns raised about certain markets that have historically been seen as bomb-proof”.
“But this simply reflects the healthy ebb and flow in sentiment that comes with sophisticated investment decision making.”
The survey’s results, she said, point to a “positive prognosis for the real estate investment industry”, with non-listed funds “driving access for many investors”.
JP Morgan Asset Management’s chief market strategist for the UK and Europe, Stephanie Flanders, told delegates at INREV’s roadshow that a rise – albeit from “an extremely low level” – in bond yields could impact on how investors view allocations.
Vuong said that, while real estate could lose its shine relative to other asset classes, investors may find they inadvertently reach their target property allocations “without doing anything” as a consequence of an upturn in bond yields.
Overall, more than half of investors who responded to the survey plan to increase their global real estate allocations over the next two years.
Asked whether allocations for 2018 would be as much as they are for 2017, Tristan Capital Partners’ head of research and strategy Simon Martin said it would depend on the outcomes of elections across Europe this year.
Possibly a beneficiary of the Brexit effect, Berlin’s office market was highlighted as the most preferred investment choice for the coming year (48.9%), followed by Paris offices (48.3%) and Frankfurt offices (46%).
The majority of investors identified German offices (56.9%), French offices (55.2%) and German retail (51.7%) as their likely top three choices in 2017.
Nearly half of investors selected value-added (48.7%) above core (40.8%) as their preferred investment style.
Opportunistic strategies (10.5%) were in third place.
With “expensive entry points” for value-added strategies, Byrne said he was cautious about the level of risk being taken by some investors in developed markets.
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